“The raging debate over whether to nationalize C and/or BAC is semantics at this point. With politicians in DC dictating executive pay, marketing expenses, employee trips, dividend policy, etc… with their tens of billions of pfd stock (which may now be common with an amazing sleight of hand with no new money) and the guarantee of almost a half trillion $s worth of assets, both are already wards of the state.

But, whatever step the government may or may not take, healing the banks directly is still only dealing with the symptoms and not the disease.

That disease is ‘an overleveraged consumer and falling home prices‘ — when its cured, it will heal the symptoms that is a troubled bank sector. Shifting bad assets from the banks to the govt is just a shell game as we’ll pay for it one way or another. The $64k question is what will happen to bond holders . . .

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

I note that the MSM got it wrong again this morning…I read that the further governmental intervention with C was going to cause an up day….maybe we do end up UP, but as I write, we are now in the red in all three main indices…and no matter how the MSM sees it, C is STILL a Zombie bank…

The diseases is not the overleveraged consumer, Barry. That’s just another symptom. The disease is that we have a service economy where we make our money by borrowing money from China to buy goods made in China, ship them over here, and then sell them to ourselves in Wal-Marts.

Until we start *producing* something, we won’t have cured this disease. People were overleveraged because they had to be–wages and employment have dropped since 2001, and the only way the average worker could bridge the gap was to borrow. Even those of us who tried to break that cycle by going to school and getting a college education ended up having to leverage ourselves with student loans because America’s “no tax” policy meant no investment in the future.

The only way to start producing things again is to invest in the future (just like the only way to produce a return is to take your money out of the mattress and buy an investment). We need to have a massive investment in education, infrastructure, and research/technology, but we also need to admit to ourselves that we didn’t just start ruining our economy recently. We’ve bought into the stupidity of free market fundamentalism since 1980, and this is where we are. It’s not going to be fixed overnight.

I’ve thought all along that the word “nationalization” was chosen by the right wing to take advantage of the knee jerk reactions of Americans to socialism, even though we have been closer to national socialism than capitalism for the past couple of decades. Germany under Hitler was the military industrial complex gone wild, with a veneer of ideology. Here, the free market ideology has really been about hidden government subsidies for big business, whether in terms of tax breaks for big oil or military manufacturing or contracting.

This control of the language of debate reached it’s peak during W’s reign: it wasn’t invading Iraq to build bases and control oil, it was “Iraqi Freedom.” It wasn’t domestic eavesdropping, but “terrorist surveillance.” Examples ad nauseum.

Nationalization of the banks as it should be wouldn’t be much different than what the FDIC has been doing since its creation or what the RTC did: spin out the assets as quickly as possible after stripping out the crap. As its being done now, we will be involved for a decade or more.

U.S. demand is the problem and policy initiatives are hoping to make it short term, whether directly or indirectly. World demand, while experiencing a slowing, is still positive and supported by global econonic growth. While China may be deemed ‘in recession’ at 6% growth, you can’t go anywhere in Beijing, Nanjing, Shanghai, etc., without seeing dozens of cranes on the horizon, all working full out. The same is likely true of India and other emerging economies. The industrialization of the world is not a temporary initiative and it’s not over… it’s still in the early phases. To think that companies aren’t going to be able to siphon off their profits like the have in the past is to abandon all faith in capitalism. The U.S. may have offshored a lot of productive capital, but it didn’t fall of ships and into the sea.

There will be pain for the shareholders of some of the weaker companies. But anyone who has been involved with corporate receiverships or proposals to creditors should know that once the haircuts are taken, the tides can turn quite quickly.

With the doom and gloom mentality so pervasive, the time now is to look for the survivors. It’s hard to imagine survivors who won’t come through this mess as big winners.

Bequeathed a financial system on life support; two unresolved wars; the most serious recession since the thirties; a plethora of legacy legal and regulatory problems domestically; why hasn’t he sorted it all out…. after all it’s all so easy…..and he’s been in office for four weeks ……what’s he waiting for…..this is easy……I could do it………CUE: EYE ROLLS

I don’t think anyone expected him to have turned this around in 4 weeks…hyperbole doesn’t do your position any good…the problem is that bloggers see a lack of planning and fresh ideas…and that some of the early moves may actually harm the economy…

My diagnosis is that the US government WILL roll up the money-center banks over time. Their constraints in not doing so immediately are:
1. The Treasury and commerce departments are not yet fully staffed by the Obama administration.
2. The FDIC has only 5,000 staff. (There were 20,000 during the S&L crisis). Until they have been hired, vetted, and integrated, its unlikely that the government will move on banks with more than 100,000 employees.
3. The Federal Reserve and Treasury Department need enough time to analyze the derivative contract structure of the banking system so that the fall of the dominos can be pre-planned. The fall-out from the forced Lehman collapse exposed how unintended consequences can cripple seemingky unrelated businesses, and the fragility of the over-leveraged, over-contracted banking world.
3. Its likely that some of these bank’s bondholders will be forced into an equity trade or worse during the work-out. Inevitable when liabilities exceed assets.

So if China is using its huge currency reserves to buy foreign oil and gas companies ( i.e buying tangible assets with a strategic purpose ) why would they want to continue buy devalued T bills at same clip !

Like I said if any Obama economic team ‘poser’ ran a F500 company I wouldn’t invest a nickel.

February 23rd, 2009 at 11:11 am
ottovbvs don’t know what your profession is but you are a great apologist

I think he’s a troll, paid to look for any Obama doubters in the blogosphere, and set ‘em straight.

Me, I’m a revolutionary and anarchist (and curmudgeon). Obama, being simply a different shade of Bush, is making this way too easy.

BTW: The problem is not “an overleveraged consumer and falling home prices”. The problem is excess supply caused by the artifice of demand caused by monetary mischief. Until we work through the excess supply (now of almost everything, sorta like the GD), there won’t be any recovery. 2012 at the earliest, and that’s only if we can somehow keep attracting 3 million immigrants per year.

Geithner has very little staffing so far — and the conventional wisdom out here is not the conventional wisdom of the banking industry as yet. Let’s cut everyone a bit of slack here since none of us has the inside info on what the banks actually have and if they are still solvent or not.

Even if we do fully nationalize Citi and BofA, this isn’t an easy process, given they are huge multinational companies. So it is going to take time to figure out how to do this right.

Yes, Timmy is vamping like crazy. What else can he do right now, really?

To understand why Big Shitpile is just that – with hardly any ponies hidden at the bottom for eager prospectors to dig up – it worth taking a look at how the stinking heap was created in the first place. As it turns out, I’ve been spending much of my professional time lately studying what happened in the credit markets during the bubble years, so I think I have a slightly better grasp than I did at the time, when I only thought it would lead to a nasty financial crisis, as opposed to Great Depression II.

The broad story is well known, even to the cable TV pinheads: Housing Bubble + Subprime Mortgage Lending + Derivatives = Armageddon. (The numerical illiterates at Fox News would probably add ACORN to that equation.) But even now I’m not sure if many people fully understand just how insanely reckless the carnival was, to the point where future historians will speak of “structured finance” in much the same the way we talk about the bubonic plague.

Bottom line: great big chunks of Big Shitpile aren’t “impaired,” or “illiquid,” or “distressed,” they’re worthless, now and forever – unless the peak real estate values of the bubble can miraculously be restored.

That would include US President William Jefferson Clinton and his Treasury Secretary Robert Rubin, I assume?

Just in case you were one of those asshats that think there’s any real difference between the parties. And don’t forget Rubin’s follow-on job as head of Citi’s Board. That worked out well for him. He failed miserably and wasn’t even (or was?) a believer in that failed ideology. I assume the new ideology is different from the old, failed ideology, yes? Let me know when you’ve got some evidence to that effect.

It’s one of the oldest scams on the Internet, but Citigroup Inc. (NYSE:C) may have fallen for it. In a twist on the swindle where the trusting are duped into giving up their personal information by a foreigner promising to wire them millions, a Nigerian man, Paul Gabriel Amos, got Citi to wire him and his associates a total of $27 million, according to The New York Times.

I do not believe this is correct. Virtually every “attempt” to put controls like this into law been repeatedly and quietly rebuffed, beginning with the stripping of all executive pay limits in the original Paulson bailout.

Instead, taxpayers are getting the worst of both worlds: paying all the costs but having none of the control accountability that normally comes with such “investment” in the real world.

TC,
Yes, it would include Clinton. The best I can say about Clinton was that he had a heart. He knew where he came from, and he did what he could to see that some of the juice dribbled to the poor and middle classes. That’s not much, but it’s a helluvalot more than we got from Reagan, Bush I, or Bush II.

Is it just me or does anybody else notice that the last four times they switched from republican to democrat and back in the white house in a major way there just happened to be a recession around that time? That dawned on me this weekend but I am finally putting it into your minds today

Purportedly the government holds $52 billion of preferred shares in Citigroup, five times the bank’s market value as of Feb. 20. If the U.S. were to convert all of its holdings into common shares, it would own more than 80 percent of the company.

So why the f**k is Obama throwing more taxpayer money in this black hole ?

February 23rd, 2009 at 11:19 am
“I don’t think anyone expected him to have turned this around in 4 weeks…hyperbole doesn’t do your position any good”

…..You should read some of your own postings and those of km4 and others if you want to see some examples of what you call hyperbole…..and mine was parody actually…..not that it’s difficult with some of the stuff here.

The Curmudgeon Says:
February 23rd, 2009 at 12:24 pm
Me, I’m a revolutionary and anarchist (and curmudgeon). Obama, being simply a different shade of Bush, is making this way too easy

….I’d figured out you were a nihilist so it’s good to hear you fess up. Mind you nihilism doesn’t have a great track record in the problem solving.

km4 Says:
February 23rd, 2009 at 11:11 am
“ottovbvs don’t know what your profession is but you are a great apologist”

…..On the contrary I’m a realist and gave up believing in silver bullets long ago. Running some fair sized businesses in different countries does that to you.

“That disease is ‘an overleveraged consumer and falling home prices‘ — when its cured, it will heal the symptoms that is a troubled bank sector. ”

This is not precisely true, or rather it confuses the disease and the cure and thereby frames the problem in a way that is misleading. “Falling home prices” are the cure; overpriced homes were a symptom of the disease. Home prices are still too expensive measured against historical norms of median incomes and rents. The disease of deregulation and risk denial created an oversupply of credit that made housing prices too high. Falling home prices are a good thing. It means the real estate fever is going down. Put another way… the boom was the problem, the bust is the solution.

Kudlow (believe it or not) says it all: When the representatives that we elected and sent to Washington to be our voice… are forced to vote on a bill without even getting a chance to read it… we have no voice.

Governments by, of, and for the people… do not hand blank checks to bankers who cooked the books with Enron-style accounting, who paid themselves billions of dollars in outrageous salaries and bonuses on profits that never existed, and who made loans and bets on derivatives that they didn’t have the money to cover.

The disease goes way beyond “‘an overleveraged consumer and falling home prices”. The $500 trillion in derivatives floating around the world, a national debt that doubled in eight years, and consumers that are in debt up to their eye balls. A total debt in this country that is 350% of GDP, vs the previous high (in 1932) of some 190%.

Paulson plan for TARP I was to buy toxic assets. I got the feeling that when they really started looking, the
$750 billion in TARP I, wasn’t even a 10% down payment. Now every time they look the pile of crap held by banks it over whelms any solutions. So here we sit, pumping money into the black hole called the banks and hoping something gets better. I’m starting to believe there aren’t any answers, unless you let the whole sucker go down to paraphrase Bush II.

Volcker’s speech a couple of days ago sounded about as negative as this post. He said capitalism will survive, things are worse than the great depression, industrial production falling at rates greater than the great depression, etc.

Yes, Obama was left with a steaming pile, and no body knows what to do IMHO.

I don’t like Geithner for my own reasons. He appears like a wet behind the ears banking yuppie who had his future all planned out for him and it involved swindling you and me out of all our cash, except woops, now he’s ruffled because his whole career got stuck in quicksand, now he’s got to fix it all so he can get back on track. That means he’s got to steal from you and me to give to the rich dudes so he can still get invited to the taking all our cash party. From his hair to his eyes to his crooked collar, his whole demeaner screams I don’t like this, this is not what I signed up for, just let me make it through this so I can get to the good part.

The f500 STILL has too much sway in government decisions. That is the reason for slow change. However, despite massive gerrymandering by f500 shill Tom Delay, the people managed to express their outrage last november.

I say we are moving in the right direction. But the people in that huge hummer ahead of us throwing kitchen sinks in our way are just “doing what they do”.

President Barack Obama plans to announce Monday a former Secret Service agent who helped expose lobbyists’ corruption at the Interior Department as his pick to oversee the $787 billion economic stimulus plan. Obama is set to name Earl Devaney as chairman of the new Recovery Act Transparency and Accountability Board, an administration official said Sunday. Vice President Joe Biden also will be given a role coordinating oversight of stimulus spending. The official spoke on the condition of anonymity because the White House had not made public the announcement. Devaney, the inspector general of the Interior Department, helped turn up disgraced lobbyist Jack Abramoff’s dealings at the department. The department’s No. 2 official, Steven Griles, pleaded guilty to charges he lied during congressional testimony based in part on Devaney’s investigation. Obama has pledged the Recovery Act Transparency and Accountability Board to be an at-large body to oversee how the government spends billions allocated to help the flailing U.S. economy.

You see? This is NOT the way the Bush crooks and liars whitewashed and gamed everything in order to destroy democracy and create an MBA’s wet dream. Things are improving.

Nihilism equals revolutionary and anarchist? Okay. You win. We apparently don’t use the same dictionary.

……Well I’m not sure you use a dictionary at all……Nihilism and Anarchism are synonymous….And revolution is not anarchism although you apparently think it is…… I’d say would say your familiarity with the English language is up there with your knowledge of the finer points of the depression.

Mark E Hoffer Says: February 23rd, 2009 at 5:05 pm
” far, in fact, that after one digests their, respective, pre-masticated definitions, they’d see that they are not so similiar, after all..”

Er….not really unless you think all words have only one connotation…… Nihilism also has Kierkegaardian connotations but that doesn’t invalidate the “anarchistic” comparative……….You can google Kierkegaard if you want to explore his interpretations……He was an early 19th century Danish theologian and philospher ….Roget on the subject for us simple folk just in case you’re in any doubt…

To return to the ‘nationalization is semantics’ topic, could someone please explain the real differences between the government (a) buying convertible preferred stock in C, and acquiring some of C’s bad assets, versus (b) formally nationalizing, liquidating, replacing mgmt/board.

I think the real question is this: under formal nationalization, who _does not_ get paid? Equity holders are wiped out, right. But then equity is majorly diluted by what is going to happen under Geithner’s current plan. OK, what about bond holders? Geithner’s plan pays bondholders, as long as he keeps it up. Formal nationalization would liquidate assets, and have the creditors line up and start paying them until the money runs out, right? So let’s say bondholders get peanuts on the dollar instead of getting paid. Now what about any CDS paper that Citi wrote: under nationalization, would the United States make good on those CDS contracts? Or do the CDS holders get informed that their contracts are void?

F. Horne.
The short answer is that this whole government intervention is like a gigantic IPO. The taxpayers foot the bill and a group of insiders make a lot of money. As to the CDSs, some will be voided and others won’t, depending on a who’s who hit list. There is a lot of corruption going on but, incredibly, this is much more honest and practical than the “in your face” asset stripping of a wall street IPO. The banks, like thw S&Ls of the 80s, will be recapitalized and start making money again. I hope bankers salaries are limited GS-15 levels because that’s the most they deserve but we’ll see.

I think that you’re getting to the meat of it. Who takes a bath, how much, and how quickly. How much can we dump onto the public. That has just got to be the invisible handcuffs that are impeding a process that is, lets face it, in the end only a matter of numbers on paper, ledgers, and accounting software.

I was thinking that a liquidation and default on the debt-holders would create a rapid shock of deflation, and that the avoidance of that was the holdup, but now I doubt it. The necessary money destruction is happening anyway, and in a slow, painful way. Until we reach the endpoint of that process, we have a high degree of unpredictability, because the value of currency (debt) is likely to change wildly, up or down. The endpoint of the process is predictability. So as I see it, the most important issue is “how long does it take,” because every day that unpredictability prevents economic deals from being made, is a day that the entire planet does not risk, innovate, and produce value. In the end it is the lack of value production, not numbers in a ledger, that results in a depression.

About convertible preferred stock:
It’s just a bond (loan) with an option to go common. In this situation where government is involved, the difference is moot. All the hollering about common stock holders getting trashed may not be true if these banks are never legally bankrupt.

“So as I see it, the most important issue is “how long does it take,” because every day that unpredictability prevents economic deals from being made, is a day that the entire planet does not risk, innovate, and produce value. In the end it is the lack of value production, not numbers in a ledger, that results in a depression.

Am I making sense?”

Of course. However, always remember tha capital flows in public markets are not all there is to the world economy. There is a huge chunk of private investment (done by governments as well as individuals) that continues to do all the above. One caveat I would make is that a depression is caused by demand destruction, not lack of value. The ultra concentration of profit is what caused this one and the last one.

The Curmudgeon @ 12:24
I think you are close to nailing ottovbvs. The posts IMO come from some sort of troll group. I don’t think it is a single individual generating the posts. The posts seemed a little more emotional today, e.g. “And btw Mark I’m not sure how much your parents spent on your education, but it was a waste of money……My tutor would have kicked me out in five minutes for juvenile pedantry like yours.” My, my, his tutor had a higher standard for juvenile pedantry than Marks. I guess the BR commenters are too irksome, particularly after such a difficult market day for some.

ottovbvs,
Good one! Our laconic Pennsylvania pillar of puffy, clipped phraseology was asking for it.
But he’s right about one thing, you know. His dictionary is definitely different from ours. Marx would have marveled at the way Mises could peddle greed like a virtue. Libertarians sound great until you understand their dictonary.

“One caveat I would make is that a depression is caused by demand destruction, not lack of value. ”

Right, but what is demand? I may want a Ferrari, but that’s not demand. If I produce value and offer it in trade for a Ferrari, then that is demand. In a financial/debt/currency crisis I am impeded in creating value because I cannot make cooperative deals with other people.

I didn’t have a tutor just the NYC public school system. The article is right though, where is capitalism.

My proposal is for the government to mandate the recall, reduction and replacement of all defective mortgages. The banks had prior professional knowledge that their actions of discounting massive Reo’s into the market would lower property values financially harming other existing customers with negative equity. A defective mortgage is when part of the “mortgage” has become an unsecured loan ( negative equity) with a partial secured lien.

There is 12.1 Trillion Dollars in outstanding mortgages of which appr. 20-25% already have negative equity.If all 25% had to be principal reduced to match appraised values, the total cost to cure to be shared by all holders of mortgages is 1.2 Trillion Dollars. Exactly how much of that 1.2 Trillion Dollars are banks actually holding?

All owner occupied underwater homeowners are entitled to a principal reduction to appraised value in the mandate, the delinquent homeowners are the only ones to subject to income qualifications guidelines.

The government and the banks need you to remain stupid and responsible, if you are current with your mortgage. Don’t worry that you are locked out of the refinance market by having the rules changed in the middle is not fair. The industry had allowed for no income and ratios to 50% to qualify you for the mortgage initially, but now the industry is stating if you can prove your income and have equity regardless of what we previously allowed and that our actions that have caused you financial harm, you are only entitled to a refinance if you put down over 20-30-40-50% as a down payment and are under 28/36% ratio’s. Keep the paying customers is the motto, only worry about the delinquent, no moral hazard here.

If you can not qualify under the new guidelines, regardless of whether you are paying and actually can afford to continue to pay, you are should be responsible for your long term investment because we need you to pay us at the higher interest rate instead of us being responsible party. Only the homeowner’s who realize that it will take them 10 or 20 years to pay off our unsecured loan, will benefit with any modifications or principal reductions, by becoming delinquent since they are costing us money.

When an investment is losing money, most people get out of the investment. The banks want the homeowners who are paying their mortgages to continue to pay, even though it is a losing investment. How long do you think it will take before the government forces all banks to acknowledge the loss, or will it wait until the government owns all of the losses?

There are 3 basic rules- 1- owner occupied, 2- citizen or resident alien and 3- the new mortgage payment has to be lowered or will be lowered (deleveraging of the US household)

Current but underwater, automatic reduction to appraised value, no income or ratios needed, this group is a good credit risk. A new 30 yr fix rate mortgage is issued at the suggested interest rate of 5.5%. No appreciation profit allowed for 5 yrs.

Current but at market value or below, a no cash out refinance up to current appraised value at the suggested interest rate of 4.5% FRM

Delinquent but underwater, an automatic principal reduction to appraised value allowed SUBJECT to sufficient income qualifications for a 33/41% at the suggested interest rate of 6.5%. No appreciation profit allowed for 10 yrs ( equity pay down also allowed for all groups). If the homeowner can not qualify with the REDUCED principal mortgage payment, the home is foreclosed on ( they don’t or maybe never qualified)

All Reo’s will be sold at current appraised values, no discounting allowed. New Homebuyers are eligible for the interest rate of 4% subject to normal underwriting guidelines. If found that the qualified potential borrower pool is insufficient , a government 10 yr forgiveable grant will be given to subsidy the principal and interest payments of lower income borrowers.

Elimination of all negative equity, elimination of all present and future toxic mortgages, lower capital reserves requirements, increased spending power of the public, increase revenue of the banks to pay back TARP, creation of jobs are just a few of the benefits of making capitalism the word of the day instead of nationalism.

I just realized that by shortening my 46 page proposal that I sent to every Senator back in September 2008 and former S.T. Paulson, I forgot a few things:

The banks/investors are allowed to take up to 3X the actual dollar amount of the loss (principal reduction given) on their balance sheets and for tax purposes at the time of the individual refinance, as a aid to help them stay solvent. (goal is a leverage ratio of 10:1)

The foreclosed home would allow and charge the former homeowner a reduced rent for up to 1 yr or until the house is sold to avoid homelessness and vacancy. If the rental payment is not paid to the bank for 60 days, on the 61 day eviction occurs.

Regardless of the who the holders of the mortgages are, ALL homeowners are eligible, it is a government mandate. ( the other way is to buy all toxic mortgage assets from the banks for the true price that is definately less than the appraised value, somewhere around 25-30 cents on the dollar)

An option will be given to holders of MBS pools that for the entire pool of homeowners affected they can accept a reduced payoff amount in lien of foreclosures or a replacement mortgage at the reduced mortgage amount and stipulated interest continuing the cash flow of the pool. ( servicers are released from responsiblity of deciding, the owners of said pools decide or reduced payoff will occur for the entire pool)

Originally any foreign country that holds a security interest in a MBS, will be entitled up to full principal balance based on the purchase price , all interest payments already paid will be added to principal balance payoff, but investing is a risk. I will leave this up to the government, but under no circumstances will interest be paid.

All derivatives or CDS placed on MBS will wash each other out ( net) with other companies that it was made with . Any CDS bet placed on a MBS that did not have an underlying monetary interest in the capital (pure bet) will return the premium paid. Any CDS bet that recieved a premium for a MBS that it did not have an underlying monetary interest in, will return the premium received. THE ONLY CDS that should be in effect is a CDS that a premium was paid on the investors/holders own monetary capital investment that they are still holding and there was no additional counterparty risk involved. There should be complete cooperation between the parties of Wall Street, erasing the CDS since none had sufficient capital to place said bets to begin with. UNDER NO CIRCUMSTANCES ARE THE TAXPAYERS RESPONSIBLE FOR BETS MADE/PAID. Let the negioatitons begin.

UNDER NO CIRCUMSTANCES ARE THE TAXPAYERS RESPONSIBLE FOR BETS MADE/PAID.

This is the part of nationalization that is not semantics. We need to talk about CDS positions, and it’s remarkable how quiet the press has gotten on this subject. Item: How is it that AIG burned through scores of billions of dollars, and now is writing down $60bn more, and they’re back to the trough for another load of money? Where did the money go that we already gave ‘em?

Similar thing with C: They can’t go through so many billions just on business operations. Where did the money go?

I suspect this is about (1) paying off wrong way CDS bets, and (2) posting more collateral (to satisfy CDS contract terms) as their stock price goes down.

So. as Geithner keeps pouring more cash into C and AIG, what happens to it? The stock holders continue to hold tradable paper; the bondholders get paid; preferred gets paid; and gambling debts get paid. I resent taxpayer money paying off gambling debts, though I don’t mind bonds and preferred getting paid–that’s honest work. I don’t even mind CDS’s getting paid if the owner of the CDS holds the underlying security.

Now. Formal nationalization is the bomb. Liquidate and let the creditors line up and see how far the money goes. Surely the United States is not going to honor all gambling debts with C and AIG in receivership.

Possible third way…. No formal nationalization. But Treasury intervenes on CDS’s, and declares that those holding CDS calls on C and AIG, who do not own the insured securities, have void contracts, and they will get their premiums back. Other CDS holders have viable contracts that will be honored. This way, equity, bond, preferred holders, and legitimate CDS holders, get paid; and the gubmint’s money goes a lot further–simply by cancelling gambling debts.

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